The Sunderland manager admits that he was surprised to see the Spaniard take over at St. James' Park.
In what was widely considered to be a big coup for the struggling side, the Spaniard agreed to take charge at St. James' Park a week ago after McClaren was sacked following the 3-1 home defeat to Bournemouth which left the Magpies with just two wins from the last 11 matches.
Benitez was in the dugout to oversee a narrow 1-0 defeat to league leaders Leicester City on Monday night, and he must now turn his attentions to try to lead Newcastle to a first win over their arch-rivals in nine attempts.
His opposite number on Sunday, Allardyce, admits he was sad to see fellow Englishman McClaren given the boot and said he was surprised that the Magpies were able to entice Champions League-winner Benitez to the North East.
He told reporters, as quoted by Sky Sports: "From Steve's point of view, I felt sorry for him and of course another English manager bites the dust. There are only three of us left now - there's only me, Alan Pardew and Eddie Howe left now, so that's a great shame.
"I have to say I was quite surprised [at Benitez's appointment], yes, but obviously being a football man, he wanted to get back in and he sees Newcastle as a good opportunity. Pitting your wits against some of the best coaches in Europe is always a challenge and Rafa is one of those, I don't think anybody would argue with that.
"We are getting Pep Guardiola, we have got Jurgen Klopp, we have still got Arsene Wenger and people like that, so we are enticing the best coaches in the world to come and work here, so it's always a great challenge as a manager to be going against them and trying to get your team better than theirs to beat them."
Allardyce, who had a fractious relationship with Benitez whilst the Spaniard was in charge at Liverpool, also insisted that any animosity between the two men in the past was now water under the bridge.
Meanwhile, both sides will be desperate to win on Sunday in a Tyne-Wear derby with even more significance than usual.
Allardyce's side currently sit outside the relegation only on goal difference, with an eight-point gap above them, whilst Benitez's men are a point and two places behind their rivals, albeit with a potentially crucial game in hand.